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What's Your ROI on Pay

According to the 2014-15 World at Work Salary Budget Survey, as in 2014, projected salary increases for 2015, for all industries, will be 3.0%. The study also reports that in 2014 between 96% and 100% of employees received an increase. The reported frequency between increases is 12.0 months. Survey participants reported that “High Performers” received a 4.0% increase.

From these statistics, we can conclude the following:

  • Organizations grant pay increases to nearly 100% of their employees annually.
  • The median increase is 3.0%.
  • High performers may receive a 4.0% increase, 33% more than the median performer.
Does this represent a highly motivational compensation philosophy that will inspire employees to invest extraordinary effort? Probably not. So how can we make pay a value-added reward system instead of an administrative burden?  

State Your Pay Philosophy

Companies write vision statements and talk about their guiding principles to increase employee commitment, but few talk about their pay philosophy and what it represents. A reward system needs to accomplish four objectives:
  • Provide a way to recognize and reward accomplishments that meet and exceed performance expectations.
  • Reinforce the culture of the organization.
  • Be cost effective, representing a good financial investment.
  • Support operational priorities.
Having and communicating a compensation philosophy increases confidence in the reward system and management. 


Employees at all levels are often unclear about performance expectations. They may be characterized as “good” employees because they come to work every day, on time, and with a good “attitude." That’s helpful, but does it actual actually result in outputs that are needed to move the organization forward? Everyone, even the very best employees, can improve. The first step in performance enhancement is being crystal clear about expectations and standards of performance.

Many employees have only a vague understanding of what the boss expects and needs to meet performance expectations and make the department successful. This makes the odds of fully meeting expectations rather low. To increase the probability of achieving outstanding performance an employee needs to:

  • Understand what the department (or company) is trying to accomplish,
  • Know how departmental performance is being measured,
  • Understand what the employee is being held accountable for, in quantifiable terms if possible,
  • Be trained and coached to improve likelihood of success,
  • Know where to turn for help if he/she has a question, and
  • Know who to talk with if he/she has an idea about improving operations.
When performance is deemed to be exceptional, take advantage of flexibility within the reward system. Grant an increase sooner than 12-months. Grant an increase that is greater than the standard 3.0%. Make the high-performance increase 200 - 300% of the norm, not just 30% more.

The reward system can define the organizational culture. As an example, BVF Company was an industrial products company selling packaging materials to a variety of manufacturers.  The sales people at BVF were paid on straight commission. They were free to prospect and develop their territories and build their customer base. They received a commission on all sales. Once sold, their role was to maintain a relationship and take future orders. Product delivery and service issues were handled by the company. The median compensation for a BVF sales person was $200,000. Recognizing that few new customers were being developed, and upon doing a little research, BVF found that there were a number of large, potential customers within assigned territories that were not being developed.  

Through their reward system, BVF had created a culture where sales people owned the customers.  They received a comfortable income for maintaining accounts without extra effort. When attempts were made to change the compensation scheme or split the territories, sales people threatened to leave and taking their customers with them.

In BVF’s case the reward system created a culture of “lone rangers” with little commitment to long-term company success. When crafting a reward system, it’s important to consider the broader message that it conveys.

Investing in Pay

Employee compensation should be viewed as an investment rather an expense. A success-sharing compensation philosophy can be a sound investment. Success-sharing plans are funded out of incremental earnings. If there are no gains, there is no payout. By communicating the basis for the calculation, the company is demonstrates transparency, which helps build employee engagement, commitment, and trust. If paid in a lump sum, rather than a salary, it becomes a variable cost rather than a fixed cost.

Focus on Organizational Priorities

Why should the management team be the only ones who are concerned about operational efficiency? Every employee has a stake in making an organization as effective as possible.  Companies should communicate short and long-term goals and what actions are being taken to achieve objectives.  

Many organizations embark on process improvement initiatives for the purpose of winning the Baldrige or similar awards. Being an award winner is nice, but shouldn’t be the goal. The key value is the focus that such initiatives bring to communicating organizational priorities creating positive change. Then, reinforce the gains through the reward system.

Making Pay – Matter

The bottom line - consider the Reward System as one of a company’s high-impact management processes - not just for sales or management – but for everyone.
Posted: 7/29/2015 7:30:00 AM | with 0 comments
Filed under: Big, Business, Centre, Council, Group, Ideas, Joel, Myers, Pay, ROI, SBC, Small, The

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Your business may be small, but that doesn't mean that your impact can't be huge! The Greater Memphis Chamber's Small Business Council serves to encourage, support, recognize and be a resource to small- and medium-sized businesses in the Memphis area. Here, our talented panel of contributors will present big ideas that could make a huge difference to your small business. And don't be afraid to ask questions ... no matter how small.

Sales & Small Business Ownership
Voss W. Graham is CEO and Senior Business Advisor for InnerActive Consulting Group Inc. He is known by his clients as "a knowledgeable partner who helps our team achieve business growth." He provides practical experience as a small business owner for over 29 years, yet is often engaged with Fortune 500 companies in the development of their people and business strategies.

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Several professionals and strategists from the local Obsidian Public Relations firm provide excellent advice on everything from research to media relations to event planning. They believe that all companies, no matter how big or small the company or its budget, should have a public relations plan driving how they manage their relationships with key stakeholders. Public relations is an integral part of doing business the right way.

Human Resources
Joel Myers is a career Human Resources professional, with over 40 years in the field including 26 years in consulting.

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Design and Digital Strategy
Founded in 1999, inferno provides brand development, advertising, public relations, design and digital marketing services to clients across a broad spectrum of industries. Headquartered in Memphis with a satellite office in Kalamazoo, Michigan, the award-winning firm produces results-driven work by passionately combining strategic thinking, creativity and culture to ensure the success of its clients. For more information, visit

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Fisher Phillips attorneys are ready to help you take a stand: in court, with employees and unions, or with competitors. Fisher Phillips has the experience and resolve to back you up. That's why some of the savviest employers come to the firm to handle their toughest labor and employment cases. The firm has 350 attorneys in 32 offices, including Memphis. For more information, visit

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